Sega Games Co., Ltd.(Japanese: 株式会社セガゲームス,Hepburn: Kabushiki gaisha Sega gēmusu), originally short for Service Games and officially styled as SEGA, is a Japanese multinational video game developer and publisher headquartered in Tokyo, Japan, with offices around the world. Sega developed and manufactured numerous home video game consoles from 1983 to 2001, but after financial losses incurred from its Dreamcast console, the company restructured to focus on providing software as a third-party developer. Sega remains the world's most prolific arcade producer, with over 500 games in over 70 franchises on more than 20 different arcade system boards since 1981.[3]

History

Company origins (1940–1970s)

SEGA Diamond 3 Star

In 1940, American businessmen Martin Bromley, Irving Bromberg, and James Humpert formed a company called Standard Games in Honolulu, Hawaii, to provide coin-operated amusement machines to military bases. They saw that the onset of World War II, and the consequent increase in the number of military personnel, would mean there would be demand for something for those stationed at military bases to do in their leisure time. After the war, the founders sold that company and established a new distributor called Service Games, named for the military focus. In 1951, the government of the United States outlawed slot machines in US territories, so Bromley sent two of his employees, Richard Stewart and Ray LeMaire, to Tokyo, Japan, in 1952 to establish a new distributor. The company provided coin-operated slot machines to U.S. bases in Japan and changed its name again to Service Games of Japan by 1953.[4][5][6][7]

David Rosen, an American officer in the United States Air Force stationed in Japan, launched a two-minute photo booth business in Tokyo in 1954.[4] This company eventually became Rosen Enterprises, and in 1957, began importing coin-operated games to Japan. On May 31, 1960, Service Games Japan was closed. A few days later, on June 3, two new companies were established to take over its business activities, Nihon Goraku Bussan and Nihon Kikai Seizo.[8] By 1965, Rosen Enterprises grew to a chain of over 200 arcades. Rosen then orchestrated a merger between Rosen Enterprises and Nihon Goraku Bussan, becoming chief executive of the new company, Sega Enterprises, which derived its name from Service Games.[9]

Within a year, Sega began the transition from importer to manufacturer, with the release of the submarine simulator game, Periscope. The game sported light and sound effects considered innovative for that time, eventually becoming quite successful in Japan. It was soon exported to both Europe and the United States, becoming the first arcade game in the US to cost 25 cents per play.[9]

In 1969, Rosen sold Sega to American conglomerate Gulf and Western Industries, although he remained as CEO following the sale. Under Rosen's leadership, Sega continued to grow and prosper, and in 1974, Gulf and Western made Sega Enterprises, ltd. a subsidiary of an American company renamed Sega Enterprises, Inc., allowing them to take the company's stock public.

Golden age of arcade games (1978–1983)

Sega prospered heavily from the arcade gaming boom of the late 1970s, with revenues climbing to over US$100 million by 1979.[9] In 1982, Sega's revenues surpassed $214 million. That year they introduced the first game with isometric graphics, Zaxxon,[10] the industry's first stereoscopic 3D game, SubRoc 3D, and the first laserdisc video game, Astron Belt. Astron Belt wasn't released in the U.S. until 1983, after Dragon's Lair.

An overabundance of games in 1983 led to the video game crash, causing Sega's revenues to drop to $136 million. Seeking an alternate source of revenue from the slumping arcade market,[12] Sega designed and released its first home video game console, the SG-1000 for the third generation of home consoles. G&W sold the U.S. assets of Sega Enterprises that same year to pinball manufacturer Bally Manufacturing, and in January 1984, Rosen resigned his post with the company.[9] The SG-1000 had an unexpectedly successful launch year but was quickly pushed into obscurity by Nintendo's NES which, though it launched the same day as the SG-1000, had more advanced hardware and greater third party support.[12]

The Japanese assets of Sega were purchased for $38 million by a group of investors led by Rosen, Robert Deith, and Hayao Nakayama, a Japanese businessman who owned Esco Boueki (Esco Trading) an arcade game distribution company that had been acquired by Rosen in 1979.[9][13] Nakayama became the new CEO of Sega, Robert Deith chairman of the board, and Rosen became head of its subsidiary in the United States. In 1984, the multibillion-dollar Japanese conglomerate CSK bought Sega, renamed it to Sega Enterprises, headquartered it in Japan, and two years later, shares of its stock were being traded on the Tokyo Stock Exchange. David Rosen's friend, Isao Okawa, the chairman of CSK, became chairman of Sega.[9]

Sega also released the Sega Master System and the first game featuring Alex Kidd, who would be Sega's unofficial mascot until he was replaced by Sonic the Hedgehog in 1991. While the Master System was technically superior to the NES,[14] it failed to capture market share in North America and Japan due to highly aggressive strategies by Nintendo and ineffective marketing by Tonka, who marketed the console on behalf of SEGA in the United States.[15] However, the Master System was highly successful in Europe, Australia, New Zealand, and Brazil with games still being sold well into the 1990s alongside the Mega Drive and Nintendo's NES and SNES.

In the mid-1980s, Sega released Hang-On and After Burner, arcade titles that make use of hydraulic cabinet functionality and force feedback control. Sega also released the 360-degree rotating machine R-360. For arcade system boards, Sega released the System series and the Super Scaler series. UFO Catcher was introduced in 1985 and is Japan's most commonly installed claw crane game.[16] Sega was also one of the first to introduce medal games with World Bingo and World Derby in the 1980s, a sub-industry within Japanese arcades up to its current day.[citation needed]

With the introduction of the Sega Genesis in North America in 1989, Sega of America launched an anti-Nintendo campaign to carry the momentum to the new generation of games, with its slogan "Genesis does what Nintendon't." This was initially implemented by Sega of America President Michael Katz.[17] When Nintendo launched its Super Nintendo Entertainment System in North America in August 1991, Sega changed its slogan to "Welcome to the next level."

The same year, Sega of America's leadership passed from Katz to Tom Kalinske, who further escalated the "console war" that was developing.[18] As a preemptive strike against the release of the SNES, Sega re-branded itself with a new game and mascot, Sonic the Hedgehog. This shift led to a wider success for the Genesis and would eventually propel Sega to 65% of the market in North America for a brief time. Simultaneously, after much delay, Sega released the Sega CD in Japan in 1991 and in North America in 1992 as a hardware add-on to the Genesis, greatly reducing space limitations on their games. Sonic the Hedgehog 2 was also released in 1992 for the Genesis, and became the most successful game Sega ever produced, selling over six million copies in total.[19] During this period, local North American development also increased with the establishments of Sega Technical Institute in 1990, Sega Midwest Studio in 1992, Sega Multimedia Studio in 1993, and the acquisition of Interactive Designs in 1992.

In 1990, Sega launched the Game Gear to compete against Nintendo's Game Boy. However, due to issues with its short battery life, lack of original titles, and weak support from Sega, the Game Gear was unable to surpass the Game Boy, selling approximately 11 million units. The Game Gear was succeeded by the Sega Nomad in 1995, and discontinued in 1997.

In 1992, Sega introduced the Model series of arcade hardware, which saw the release of Virtua Fighter and Virtua Racing, which laid the foundation for 3D racing and fighting games.[20] In 1994, Sega released the Sega 32X in an attempt to upgrade the Genesis to the standards of more advanced systems at the time. It sold well initially, but had problems with lack of software and hype about the upcoming Sega Saturn and Sony's PlayStation.[21] Within a year, it was in the bargain bins of many stores.[22]

On November 22, 1994, Sega launched the Sega Saturn in Japan. It utilized two 32-bit processors. However, poor sales in the West led to the console being abandoned by 1998.[23] The lack of strong titles based on established Genesis franchises, along with its high price in comparison to the Sony PlayStation, were among the reasons for the console's failure.[24] Notable titles in Japan include Sakura Wars, Panzer Dragoon, and arcade ports such as The House of the Dead, Virtua Fighter 2 and Sega Rally Championship. Sega made forays in the PC market with the 1995 establishment of SegaSoft, which was tasked with creating original Saturn and PC titles.[25][26]

The mid-1990s also saw Sega making efforts to expand beyond its image as a strictly kids-oriented, family entertainment company, by publishing a number of games with extreme violence and sexual themes, and introducing the "Deep Water" label to mark games with mature content.[27]

In December 1994, Sega Channel, a subscription gaming service delivered by local cable companies affiliated with Time Warner Cable, was launched in the United States, through which subscribers received a special cartridge adapter that connected to the cable connection. At its peak, the Sega Channel had approximately 250,000 subscribers. Various technical issues began disrupting the service in late 1997, eventually leading to the Sega Channel being discontinued worldwide in 1998.[28]

After closures of all their former American developers in 1995, and the closure of the PC SegaSoft division, Sega invested in the American Visual Concepts and the French No Cliché, although the latter was closed in 2001. The Dreamcast's western launch in 1999 was accompanied by a large amount of both first-party and third-party software and an aggressive marketing campaign. In contrast to the Japanese launch, the Western launch earned the distinction of the "most successful hardware launch in history," selling a then-unprecedented 500,000 consoles in its first week in North America.[23] Sega was able to hold onto this momentum in the US almost until the launch of Sony's PlayStation 2.[citation needed] The Dreamcast is home to several innovative and critically acclaimed games, including one of the first cel-shaded titles, Jet Set Radio (Jet Grind Radio in North America); Seaman, a game involving communication with a fish-type creature via microphone; Samba de Amigo, a rhythm game involving the use of maracas, and Shenmue, a large-scope adventure game with freeform gameplay and a detailed in-game city. Sega also produced the NAOMI series, which were the last arcade boards built uniquely rather than being based on existing consoles and PC architecture.

In late 1999, Sega Enterprises chairman Isao Okawa spoke at an Okawa Foundation meeting, saying that Sega's focus in the future would shift from hardware to software, but adding that they were still fully behind the Dreamcast. On November 1, 2000, Sega changed its company name from Sega Enterprises to Sega Corporation.[29]

Shift to third-party software development (2001–2005)

On January 23, 2001, a story ran in Nihon Keizai Shimbun claiming that Sega would cease production of the Dreamcast and develop software for other platforms in the future.[34] After initial denial, Sega Japan then put out a press release confirming they were considering producing software for the PlayStation 2 and Game Boy Advance as part of their "New Management Policy".[35] Subsequently, on January 31, 2001, Sega of America officially announced they were becoming a third-party software publisher.[36] The company has since developed into a third-party publisher that oversees games that launch on game consoles produced by other companies, many of their former rivals, the first of which was a port of ChuChu Rocket! to Nintendo's Game Boy Advance. On March 31, 2001, the Dreamcast was discontinued.

By March 31, 2002, Sega had five consecutive fiscal years of net losses.[37] To help with Sega's debt, CSK founder Isao Okawa, before his death in 2001, gave the company a $692 million private donation,[38] and talked to Microsoft about a sale or merger with their Xbox division, but those talks failed.[39] Discussions also took place with Namco, Bandai, Electronic Arts and again with Microsoft.[citation needed] In August 2003, Sammy, one of the biggest pachinko and pachislot manufacturing companies, bought the outstanding 22% of shares that CSK had,[40] and Sammy chairman Hajime Satomi became CEO of Sega. In the same year, Hajime Satomi stated that Sega's activity will focus on their profitable arcade business as opposed to their loss-incurring home software development sector.[41] After the decline of the global arcade industry around the 21st century, Sega introduced several novel concepts tailored to the Japanese market. Derby Owners Club was the first large-scale satellite arcade machine with IC cards for data storage. Trading card game machines were introduced, with titles such as World Club Champion Football for general audiences and Mushiking: King of the Beetles for young children. Sega also introduced internet functionality in arcades with Virtua Fighter 4 in 2001, and further enhanced it with ALL.Net, introduced in 2004.[42]

During mid-2004, Sammy bought a controlling share in Sega Corporation at a cost of $1.1 billion, creating the new company Sega Sammy Holdings, an entertainment conglomerate. Since then, Sega and Sammy became subsidiaries of the aforementioned holding company, with both companies operating independently, while the executive departments merged.

The Sonic the Hedgehog series continued to be internationally recognized, having sold 150 million in total,[1] although the critical reception of games in the series has been mixed.[50] In 2007, Sega and Nintendo teamed up using Sega's acquired Olympic Games license, to create the Mario and Sonic at the Olympic Games series, which has sold over 20 million in total. In the console and handheld business, Sega found success in Japan with the Yakuza and Hatsune Miku: Project DIVA series of games, amongst others primarily aimed at the Japanese market. In Japan, Sega distributes titles from smaller Japanese game developers and localizations of western titles.[51][52] In 2013, Index Corporation was purchased by Sega Sammy after going bankrupt.[53] After the buyout, Sega officially split Index, making Atlus, the video game developer and publisher, a wholly owned subsidiary of Sega.[54] Atlus is known for its Megami Tensei and Persona series of role-playing games.

For amusement arcades, Sega's most successful games continued to be based on network and card systems. Games of this type include Sangokushi Taisen and Border Break. Arcade machine sales incurred higher profits than their console, portable, and PC games on a year-to-year basis until 2014.[55]

In 2004, the GameWorks chain of arcades became owned by Sega, until the chain was sold off in 2011. In 2009, Sega Republic, an indoor theme park in Dubai, opened to the public. In 2010, Sega began providing the 3D imaging for Hatsune Miku's holographic concerts.[56] In 2013, in co-operation with BBC Earth, Sega opened the first interactive nature simulation museum, Orbi Yokohama in Yokohama, Japan.[57]

Company reshuffling and digital market focus (2013–present)

Due to the decline of packaged game sales both domestically and outside Japan in the 2010s,[58] Sega began layoffs and reduction of their Western businesses, such as Sega shutting down five offices based in Europe and Australia on July 1, 2012.[59] This was done in order to focus on the digital game market, such as PC and mobile devices.[60][61] The amount of SKU gradually shrunk from 84 in 2005 to 32 in 2014. Because of the shrinking arcade business in Japan,[62] development personnel would also be relocated to the digital game area.[63] Sega gradually reduced its arcade centers from 450 facilities in 2005,[64] to around 200 in 2015.[65]

In the mobile market, Sega released its first app on the iTunes Store with a version of Super Monkey Ball in 2008. Since then, the strategies for Asian and Western markets have become independent. The Western line-up consisted of emulations of games and pay-to-play apps, which were eventually overshadowed by more social and free-to-play games, eventually leading to 19 of the older mobile games being pulled due to quality concerns in May 2015.[66][67] Beginning in 2012, Sega also began acquiring studios for mobile development, with studios such as Hardlight, Three Rings Design, and Demiurge Studios becoming fully owned subsidiaries.

In the 2010s, Sega established operational firms for each of their businesses, in order to streamline operations. In 2012, Sega established Sega Networks for its mobile games; and although separate at first, it merged with Sega Corporation in 2015. Sega Games was structured as a "Consumer Online Company" promoting cross-play between multiple devices, while Sega Networks focuses on developing games for mobile devices.[68] In 2012, Sega Entertainment was established for Sega's amusement facility business, and in 2015, Sega Interactive was established for the arcade game business.[69] These new divisions would replace the former Sega Corporation, and the new Sega Holdings would consolidate all entertainment companies from the Sega Sammy group, which became effective April 1, 2015.[70]

April 2015 also saw Haruki Satomi, grandson of Hajime Satomi, take office as President and CEO of Sega Games Co, Ltd.[71][72] In January 2015, Sega of America announced their relocation from San Francisco to Atlus USA's Irvine, California headquarters, which was completed later that year.[73] Due to this corporal adjustment, Sega of America did not have their own booth at E3 2015.[74] In September 2016, Sega announced that they had acquired all of Technosoft's intellectual properties.[75]

In April 2017, Sega Sammy Holdings announced a relocation of head office functions of the Sega Sammy Group and its major domestic subsidiaries located in the Tokyo metropolitan area to Shinagawa-ku by January 2018. Their stated reasoning was to promote cooperation among companies and creation of more active interaction of personnel, while pursuing efficient group management by consolidating scattered head office functions of the group. The companies planning to relocate to the head office are Sega Sammy Holdings, Sammy Corporation, Sega Holdings, Sega Games, Atlus, Sammy Network, and Dartslive.[76]

In 2003, Sega had plans of broadening its franchises to Hollywood co-operating with John Woo,[77] but plans fell through.[78] In 2015, Sega, together with advertising agency Hakuhodo, established Stories LLC, in which they are tasked in creating various television shows and films based on forty video games by Sega.[79] Currently, Sega owns TMS Entertainment, who had business relationships with Sega dating back to 1992.[80]Marza Animation Planet spun off Sega's internal CGI production.

Sega Toys was founded when Yonezawa Toys, Japan's largest post-war toy manufacturer, was merged into Sega in 1994. It was briefly known as Sega-Yonezawa until the Yonezawa name was dropped entirely in April 1998.[81] Since the early 2000s Sega Toys has become a mostly separate entity from Sega with its own management structure and goals, with some occasional collaboration between the two; Sega and Sega Toys produce the UFO Catcher prize games jointly, where Sega manufactures the arcade equipment, while Sega Toys produces the prizes[citation needed]. They have created toys for children's franchises such as Oshare Majo: Love and Berry, Mushiking: King of the Beetles, Lilpri, Bakugan, Jewelpet, Dinosaur King and Hero Bank. Products by Sega Toys released in the West include the Homestar and the iDog. Sega Toys also inherited the Sega Pico handheld system and produced software for the console.

Sega Europe

Seal of Quality

The Sega Seal of Quality was an icon placed on the packaging of all video games that had Sega's official approval to be played on a Sega console system. Similarly to the Nintendo Seal of Quality, the intention was to avoid the mistakes that led to the North American video game crash of 1983 by ensuring games were compatible with the intended console system and to censor content felt inappropriate. The seal appeared on a video game's box and marketing as a means of informing the consumer that Sega had previewed the game before its release and had met a certain level of quality standard (including graphics, sound, challenge, and content appropriateness).

Sega never required a third-party software developer to earn the official seal as a precondition for publication, although most developers chose to do so. Furthermore, a game could earn the seal even if it contained certain themes that its bigger competitor, Nintendo, would have prohibited: blood, scantily clad females, and graphic violence. Video games released on a Sega home console system could still censored by the software developer for other taboo or controversial depiction, including profanity, nudity, prostitution, and homosexuality.

In 1993, Sega of America permitted Acclaim to keep the graphic violence and gore in its port of Midway's popular arcade game Mortal Kombat. As this game and other games sparked a national controversy over violent content in video games, Sega created the Videogame Rating Council to give a descriptive rating to every game sold on a Sega home console system in the United States. This rating, along with the seal, would appear on the game's box and marketing. The Videogame Rating Council was phased out in 1994 with the adoption of the industry wide Entertainment Software Rating Board. Sega gradually shifted the scope of their Seal of Quality to focus less on content and more on compatability. The seal was phased out after the discontinuation of the Dreamcast in 2001.